Gross domestic product will shrink 2 percent this year compared with a 0.9 percent contraction forecast in March, the institute said in a statement before a press conference in the capital Ljubljana today. GDP is expected to shrink 1.3 percent.
Slovenia’s economic outlook is worsening as demand for its exported goods falters and domestic consumption drops following austerity measures by the government in Ljubljana and others in Europe. Exacerbating the outlook are the ailing banks in the euro region, which rely on funding from the European Central Bank, continue to lower lending and need fresh capital.
The government has increased its estimate for the bank recapitalization cost to 5 billion euros ($6.5 billion), Finance Minister Janez Sustersic said yesterday. Slovenia will guarantee as much as 4 billion euros to transfer bad loans to an agency, while banks, including Nova Ljubljanska Banka d.d. and Nova Kreditna Banka (KBMR) Maribor d.d. are set to receive a direct capital injection of as much as 1 billion euros, according to Sustersic.
Banks in the former Yugoslav nation are at the center of investors’ concern that the country may be the next in line to ask for an international bailout. Slovenia’s borrowing costs have eased since August, when they surpassed the 7 percent threshold, a mark that forced Ireland and Portugal to seek financial assistance from its euro peers.
Slovenia still aims to cut the budget deficit to 3.5 percent by the end of the year from its 6.4 percent level at the end of 2011, Sustersic said. By the end of next year the target is to lower the gap below 3 percent, he said.
The government uses the institute’s forecast to prepare the budget spending.
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